In previous columns, I have written about how companies such as Nike, Walmart and SAP are using sustainability strategies like Product Life Cycle Analysis, green product development and the reframing of environmental standards to deliver on their sustainability goals. Now, we turn our attention to the important but often overlooked role of Information Technologies (IT) in supporting green business strategies. In the past, many companies have been reluctant to consider IT for a host of reasons including the presence of significant legacy assets; the mission-critical nature of many IT systems and; the lack of a strong consumer impetus.

IT systems and their accompanying data centers are a major source of carbon emissions, toxic waste as well as being a major consumer of energy. According to a study by A.T. Kearney, a consultancy, corporate IT departments creates as much as 1 million tons of obsolete electronic equipment each year and produces 600 million tons of carbon dioxide (CO2) emissions worldwide per year. For perspective, these emissions are equivalent to the annual CO2 output from almost 320 million small cars. As well, some data centers are so big that they consume as much energy and water as a small city.

With Internet-based services growing at healthy double-digits per year, IT’s environmental impact will continue to increase rapidly unless management does something to rein it in. If most organizations are going to meet their aggressive sustainability goals, they will have to take a hard look at their IT operations.

Where should they start looking?

Powering down

Energy usage is a key area to tackle first. According to the Interactive Data Group, a typical IT department in 1996 spent 17 cents of every dollar to power and cool a new server. A decade later, the rate jumped to 48 cents per dollar. The firm predicts that number will grow to over 70 cents by 2012.

When considering ways to reduce power consumption, an obvious place to look is the data center. A number of steps can be taken here including monitoring and improving HVAC efficiency; switching to more efficient blade server and virtualization architectures and; choosing cooler climates to build new data centers.

The front office is another fertile source of energy savings. Every firm can benefit from quick wins such as installing power measurement and management software and introducing policies that require PC users to shift to low-power or shut-off state when not using their machines. When Bendigo Bank in Australia mandated employees turn off unused desktop computers, monitors and printers that used to run constantly, they saved more than $300,000 a year in electricity.

Buy greener

Better purchasing governance is an important tool to reduce a firm’s environmental impact. For example, managers could stipulate that new equipment purchases must bring the highest energy efficiency ratings as well come from companies that feature prominently in sustainability indexes and standards. Moreover, buyers might also look for products manufactured from recyclable materials and that generate minimum amounts of hazardous waste and carbon emissions. Finally, in order to reduce the purchase of unnecessary assets, policies should be enacted that prevent buyers from over-buying equipment just because someone wants the latest technology. One way to ensure this happens is by extending the life cycle of IT equipment.

Improve reporting

Some companies are using IT to improve sustainability reporting across the entire value chain. Dow Chemical’s IT group, for example, acts as a green watchdog, tracking emissions, performance and vendor activity. Dow is using this data to calculate a net environmental balance across a product’s entire life cycle to help them better understand how materials are consumed in manufacturing. These insights can identify environmental and cost savings throughout their operations as well as their vendor inputs. Finally, improved tracking and reporting will enable companies to better meet customer sustainability programs like Wal Mart’s Sustainability Index as well as provide key environmental data to consumers.

Greening IT will be crucial to helping many organizations achieve their aggressive sustainability targets. Managers can ill afford to ignore this under-developed area.

Earlier, we explored two companies, GE and Nike, that are considered ‘best in class’ when it comes to generating financial and environmental value from sustainability initiatives. Below are two other leading firms in this area, according to research from MIT’s Sloan Management Review.

Wal Mart

Background

The World’s largest retailer of 7800 stores (and growing) has been at the forefront of implementing sustainability initiatives. Initially, Wal Mart focused on internal programs like greening their roofs and moving to more energy-efficient light systems. Lately, the firm has turned its focus to greening its supply chain and encouraging it suppliers to follow its sustainability lead.

Some Key Strategies

In 2005, Wal Mart set ambitious goals of producing zero waste, using only renewable energy and selling only environmentally sustainable products. They backed up these goals with one of the most comprehensive sustainability plans at the time. As part of this plan, Wal Mart has pushed [sic] most of its large suppliers to switch to more green-friendly products and to track their environmental footprint. In addition, Wal Mart is undertaking a wide-ranging product lifecycle analysis of its supply chain to identify areas with significant environmental and cost savings potential. For example, to hit its zero waste target the company is implementing a number of programs that improve inventory management, increase donations, and ramp up recycling. Finally, Wal Mart is participating in a consortium along with academics, retailers, NGOs, suppliers, and the government in order to build a global database of product information. This data will be used to develop an index for consumers to evaluate products based on environmental impact. A centerpiece of this plan is the creation of a Sustainability Index which requires each supplier to rate their products based on sustainability criteria.

Results

Wal Mart’s efforts have yielded important savings. For example, at Wal Mart’s behest Unilever switched to concentrated detergents in 2006 order to save packaging and reduce its carbon footprint. According to the firm, the packaging change has saved well over 80M pounds of plastic resin, 430M gallons of water, and 125M pounds of cardboard. Importantly, Unilever’s packaging decision triggered a category shift to concentrated formats driving further savings. For the future, Wal-Mart is aiming to turn its Sustainability Index into a global standard that measures and communicates the green footprint of a product, thereby becoming “a tool for sustainable consumption.”

Rio Tinto

Background

Rio Tinto is a big mining entity with a big environmental footprint. For new projects, the company needs to win the backing of local communities, governments, and NGOs in order to reduce political, economic and brand risks and to deliver steady returns.

Some Key Strategies

About a decade ago, Rio Tinto came up with the concept of working within countries and communities in order to operate in an environmentally respectful fashion. At the time, the company was developing a mine in Madagascar that was a source of contention. The Madagascar government as well as NGOs were worried about threats to biodiversity and the local communit, given that the site was one of the last pristine regions on the island and a home to aboriginal people. A plan was developed to protect the environment and create economic opportunities in the communities surrounding the project, including setting standards and goals for the company to meet. Key components of this plan include: policies to protect biodiversity and water quality around mine locations; plans for the time mining operations would be over in order to prevent the emergence of “ghost towns” and; goals for greenhouse-gas emissions and energy use.

Results

As a result of this initiative, Rio Tinto has obtained what it calls a “social license to operate” in Madagascar thereby increasing overall corporate revenues and profits and improving their corporate reputation. As well, the company also helped form the International Council on Mining & Metals, which encourages sustainable practices across the mining sector.

If you think green marketing is a lot of hype, you might want to ponder the implications of a July 16, 2009 announcement. On that day, Wal-Mart launched their Sustainability Index, which measures the environmental impact of every product they sell. This Index has the potential to reshape retailing and the consumer goods industry by requiring manufacturers to measure the environmental impact (e.g., carbon footprint and recyclability) of each product they sell (Wal-Mart sells over a million products on and offline) and then to label them accordingly. In essence, each supplier is now competing through the Index for favorable treatment from the world’s most powerful retailer, who in 2008 generated sales of $406B.

I have mixed emotions with this initiative. On one hand, I salute the attempt by a major retailer to bring scale, order and credibility to a confusing and misunderstood subject. Wal-Mart expended significant effort and cost to develop the plan including extensive consultations with suppliers, other retailers, universities and non-profit environmental organizations. To maintain impartiality, Wal-Mart plans to have a public-private consortium own and operate the Index.

On the other hand, this type of regulation-yes that is what it is-strikes me as a nervy act of a private sector big brother, especially when the company is often not shy to throw its weight around. Requiring suppliers to analyze their supply chains at the granularity necessary will be neither a simple or inexpensive activity, especially for small firms. Moreover, one can’t help but ask how different voter-accountable governments, who are ultimately responsible for environmental and consumer regulations, will support this Index, especially when it may not align with different national standards. Finally, one needs to consider how credible is an Index that does not encompass every retailer nor is legally binding. Could a confusing situation evolve where there are competing indexes, much like there are two different US College Football ranking polls?

Typically, Companies that embrace and adapt to change faster reap the greatest rewards. However, with most changes, the devil is in the details and not all of these are apparent today. The Index will probably help the environment but will it be at the expense of higher prices passed along to the consumer? In addition, could the Index be interpreted by other nations as a non-tariff barrier? If so, there is the potential to trigger international trade problems.

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About Mitchell Osak

Mitchell is a management consultant with a passion for strategy development and execution. He has 20+ years of consulting and senior operational experience in a variety of Fortune 1000 firms. Mitchell is considered an "un-consultant" for his collaborative approach, expert problem solving and holistic strategic insights. His email is: mosak@quantaconsulting.com